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Retirement Income Management


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To enjoy a comfortable retirement lifestyle, you’ll need to have adequate financial resources in place. And that means you must plan for the expected — but prepare for the unexpected.  You also need to know that your money will be there for you as you need it during retirement.

Knowing that, you’ll then have to figure out how much you can withdraw each year. This is a complex decision that must take into account a number of factors including your life expectancy, risk tolerance and asset allocation. Of course, your choice of withdrawal sum will have a significant impact on how long your money will last.

If your investments are going to provide a significant part of your retirement income, you need to carefully manage annual withdrawals from your portfolio. Your withdrawal rate plays the biggest role in determining the sustainability of your spending strategy. In other words, it is key in helping to ensure your portfolio provides for your needs as long as you need it.

You can avoid or minimize your danger of overspending in retirement by doing some thorough thinking and planning well before you retire. Perhaps start with the widely promoted 4% withdrawal rule, which suggests that you withdraw 4% of your nest egg in your first year of retirement, and then another 4% each year thereafter, adjusting the 4% for inflation.

That withdrawal rate is designed to make your money last. You can use the rate to estimate the nest egg you’ll need in retirement by multiplying your desired annual income stream by 25. So, for example, if you’re looking for $15,000 annually to supplement your Social Security income, you’d multiply that by 25 and would get $375,000. (Four percent of $375,000 is $15,000.)

It is critical to prepare for unexpected market declines, as this can affect the health of your portfolio and can also affect your ongoing withdrawal rate. It is important to either budget for this by being more flexible with spending (and possibly withdrawing less) or consider insuring against this risk by using an immediate life annuity to provide you with a guaranteed income stream.

How long you can expect to live is somewhat of a mystery. If you were to live longer than you anticipated, would you be financially prepared? To help make sure your money lasts throughout your lifetime, you may need to consider investments that can provide you with a lifetime income stream. And your longevity will obviously also affect your annual portfolio withdrawal rate.

Even the U.S. Treasury encourages annuities, which allow for retirees to receive a steady stream of income for the duration of their lifetimes.

Here are a few benefits of annuities not offered by other investments:

• Guaranteed Income for Life – even if annuity value falls to zero,
• Creditor Protection – if you get sued you can’t lose your annuity
• Guaranteed Increases in your future income,
• Tax-Deferral – can help reduce income-tax on social security and Medicare Part B premiums,
• Control of when, and how much income you want,
• Tax-free fund exchanges,
• Free from Probate – pass directly to beneficiaries at death without the cost, delays and publicity of Probate,
• Safety – Backed 100% by issuing companies,
• Liquidity – offer 10-12% annual free withdrawals offering immediate liquidity,
• Annuitization can eliminate need for RMDs,
• Long-Term Care riders
• Backed by state insurance departments

With a fixed annuity, you pay a sum up front and, in return, receive a fixed monthly payment for life, providing you with a reliable stream of income you can’t outlive. This may make sense if you’re seeking income now or if you want a known income stream that won’t be affected by market fluctuations

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Wednesday, August 26th, 2015 Wealth Management Comments Off

Avoiding The “Danger Zone” of Retirement

Last week was awful for world markets. And this week is off to a horrific start.  Last week was pretty unpleasant, unless you are still in the accumulation phase for your retirement. Through last Friday, all but 165 funds in the Morningstar 500 were in the red for the year to date.  Market turmoil may be even more unsettling for investors with just a few years to go until retirement—what experts consider a portfolio “danger zone.” Avoiding wrong moves amid the turmoil could be even more critical.

The stock market is inherently risky. You can double your money if you guess right or lose it all if you guess wrong.  A lot can happen in a short period. “In 2008, some people saw as much as a 50 percent loss.  Fresh off Wall Street’s worst week in four years – one that saw the Dow Jones industrial average lose 10 percent of its value and the Standard & Poor’s 500 index slip below the magical 2,000 barrier – nobody likes seeing drops like last week.  Last week may have felt like a calamity if you were watching your portfolio shrink by the hour.

While investors should avoid panicking over short-term movements in the value of their long-term investments, the recent volatility ought to serve as a wake-up call to re-examine risk and stress-test your portfolio against the possibility of further declines.  Be especially careful if you were like many investors that were pushed into taking on higher risk investments due to the low-yield environment.

If the thought of a certain percentage drop in your portfolio makes you break out in a cold sweat, it’s time to dial down the risk. Use the interest to participate in market moves without any market risk to your principle.  Sequence of risk is a retiree’s nightmare.  A loss of 10% in the first 5 years of retirement can shorten a portfolios life by 10 to 15 years.  This has been a big dip in the market, investors should not necessarily be complacent with large losses in their retirement funds.

The stock market is the main depository for retirement money because myths like “long term you’ll do better in the market” are simply too powerful to resist.  Myths like “don’t sell now you’ll miss the coming rally, in the long run you’ll be fine or don’t think losses when the market falls, think buying opportunity.” Even though these myths are consistently wrong, many retirees stay the course and keep their money in the market.  Even if you get back to even and “earn” all of your losses from a previous correction you lose.

A much safer approach for the risk averse and the retirement-minded is to determine how much they can afford to lose without destroying their retirement and safeguarding the remainder from loss of principal.

Fixed Indexed Annuities’s offer several distinct advantages over stocks and bonds, including protection from market declines, elimination of bond default risk, participation in positive performance of stock market indexes, tax deferral in non-retirement accounts, sustainable lifetime income with a MGWB or income rider, investment management simplification, and elimination of investment management fees on the portion of a managed portfolio that’s invested in FIA’s.

Fixed index annuities have a potential for increased growth when an associated stock market index rises, without exposure to market volatility. If the index goes up, your annuity value can increase. If the index goes down, you don’t lose money because of it. Your principal and credited earnings are “locked in”.  Fixed index annuities offer a wide range guaranteed* options** and growth potential.

  • You can gain greater financial confidence about your retirement strategies and principal protection.
  • A guaranteed* interest rate, plus the potential for higher interest rates by being associated with a market index.
  • Your assets are protected when the stock market drops, because you don’t participate in the market.
  • You may purchase additional benefits, like increasing income to help hedge against inflation, with riders on your contract.
  • May be a good fit for you if you’re looking for protection of your assets with a potential for more growth.

    A retiree must avoid losses and now there is a vehicle available to do just that.  The new gold standard for investing has been created in the form of a Fixed Indexed Annuity.  Reward without risk.  There is no guessing game, markets are up, you share, markets are down, you tread water.  The initial fundamental advantage is you have no exposure to market loss.  Gains are locked in and you won’t go backwards like what is happening now in the stock market.  A true safe haven for your retirement funds.

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Monday, August 24th, 2015 Wealth Management Comments Off

Retirement Crash Insurance

After seeing 6% of their money evaporate from the highs this week, investors are wondering how much uglier things can get. The answer is: much.  The Standard & Poor’s 500 is down another 1.7% Friday – dragging the index down below 2000 at 1993.28. Seeing such a rapid decline is a reminder this bull market has gone untested for too long and the pain could get worse – much worse to bring valuations back in line with reality.

About once every few years, the market will collapse, racking up large losses in a short period of time.  These dramatic movements are called market crashes.  A crash is a sudden fall in market prices. Like a tornado, it cannot be predicted. You will not have time to liquidate your portfolio and move to the sidelines.

To make matters worse, a crash is not just a drop in some of your stocks; it is a drop in virtually all of your stocks. In a market crash, all your assets become perfectly correlated.  Just when you need it the most, diversification does not provide any benefits.

How can retirees seek shelter from the stormy market? We buy insurance on our houses, our cars and even on our artwork and jewelry.  But that’s not the case with our retirement savings – the money we spend our working lifetimes to amass – the money that will be our sole means of support once we stop working.  With our 401(k)s, IRAs and other socked-away savings, we’re content to “let it ride.” That’s a reckless and ulcer-inducing investing strategy.

Many rode this bull market up – but now, the market’s momentum is taking away a good chunk of what it gave.  The market, which is now down 2.9% on the year, and the downturn is fast and furious. The decline was a long time coming, precipitated by weak corporate earnings, a global economic slowdown and concerns over higher borrowing costs as the Federal Reserve prepares to raise official interest rates.

In a market-wide correction where everything under the sun is sold off, how do you know the difference between a broken company that’s not bouncing back and a broken stock?  What will the market be doing when you retire? If someone retired in the mid-1990s, he was a “happy camper.” If he retired in the mid-2000s, he was a “homeless camper.

And let’s not forget that if you lose 50%, you have to make 100% just to get back to even.  If you suffer investment losses in your early years of retirement, which is entirely a matter of luck, your odds of making it the distance is doubtful.

Withdrawing money when the market is down makes it worse, as there is less in the account to grow if or when the market comes back.  Here’s the problem: the market doesn’t give you average annual returns each year. It gives you actual returns that work out to an average. Nobody can predict what will happen around the next corner. Nobody knows when the market will be up and when it will be down.

When you retire, your income stops. Even if you begin a second career, your income will probably decline. The money you’ve saved suddenly becomes much more important because it’s the source of much of your retirement income. Avoiding major losses becomes more important than making those savings grow further.  How to to cross over from accumulating assets to depending on those assets to pay your monthly bills throughout retirement.

How do people find a way to protect themselves so they really have an income for life when they are living longer than ever before?  What happens if the market drops? You don’t want to sell at the bottom, but at the same time, you may also feel that you can’t afford more losses at this stage of life. You are between a rock and a hard place. Floating with the whims of the market waves and hoping the tide turns in your favor can be a recipe for disaster.

Research says that women live longer than men. Now, while that thought is wonderful and a reason to celebrate for all women, it is also something that makes retirement planning all the more important. Long life expectancy also means that you will live for a couple of more years than the average male around you and financial planning has to be done with that in mind – you don’t want to end up with no money and no prospects in the sunset of your life.

For those who value the prospect of a good night’s sleep in retirement, an annuity is the only financial product that will offer the certainty of a secure income in later life. Annuities are not just for retirees any longer. More often, younger individuals are starting to use annuities, specifically those where the growth is tied to a market index (such as the S&P 500), as a “safe-money” alternative.

First of all, a fixed indexed annuity is fixed, which means your account is guaranteed never to go down. No matter what happens, you will not lose your original deposit. That’s half the battle! However, instead of getting a small guaranteed rate of return like a traditional fixed annuity, your “base account” growth is determined by tracking the gains of a stock market index such as the S&P 500.

As an example, if the S&P 500 goes up 8% in a given year, you would get to keep (or “participate in”) in a certain percentage of that gain, which is typically subject to a cap. For example, if your cap was 5%, you would receive a 5% credit to your base account value. In other words, there is a “cap” or a “ceiling” in most annuities on how much of the gain you get to keep.

But conversely, if the market goes down in that year, you don’t lose a dime!  One of the huge benefits of an FIA is that each and every year, any gains or upside are locked in.  Like an elevator that only goes up, this unique feature of locking in gains each year is a powerful tool for our safe money.

As powerful a tool as these FIAs can be for a safe-money return, it’s their ability to simultaneously provide you a guaranteed lifetime income stream that makes make them so darn attractive.  No matter how your account performs, even if it is flat or up moderately over many years, the addition of a guaranteed lifetime income rider ensures that you will receive a guaranteed annual income stream when you decide to turn it on, regardless of what happens to your base account.

Annuities may not be as commonly used for retirement income as other well-known products, such as 401(k) plans, but they can provide a valuable stream of income during retirement that supplements Social Security or pensions.  A great method for paying for living expenses in retirement — an annuity from their defined-contribution retirement pension plan guarantees principal protection, market gain protection, and lifetime guaranteed income protection – stock market crash insurance!

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Saturday, August 22nd, 2015 Wealth Management Comments Off

Safeguard Your Retirement Income

While most of us can expect a longer post-career life than our parents enjoyed, we need to prepare so we don’t outlive savings and assets. Withdrawal strategies are often ignored at the consumer level, but they can have a large impact on retiree portfolios.  A bit of forethought and planning will go a long way to ensuring that you start your retirement on the best footing.  Whatever situation you’re in, it’s never too late to start growing, maximizing and safeguarding your retirement income.

We are, without a doubt, in uncharted waters. In the past 30 years, the concept of retirement has transformed radically. Heck, even as recently as the late ’80s, over 62% of workers had a pension plan. Remember those? Today, unless you work for the government, a pension is a relic; a financial dinosaur.  Now, for better or worse, you are captain of your own ship.  Danger lurks, and those who need positive returns to live, to pay their bills, become increasingly vulnerable.

Abraham Lincoln said, “When you have got an elephant by the hind leg and he’s trying to run away, it’s best to let him run.”  Recognize the things you have no control over and let them go.  The things you want should match up with the things you’re willing to do to get what you want.  Look at the discrepancies and decide whether it might be time to adjust your goals.

Many are warning investors to “brace….brace…brace” – another round of weakness in the equities market is coming.  Investors with the most at stake are finding fewer reasons to own shares amid weak corporate earnings and some of the highest valuations, wealthy investors, who have been through bear markets, are better at exiting, should this be consideration regarding your retirement funds..

Can you imagine not having to worry about opening your monthly statements and praying the market holds up? You don’t have to be wealthy to know that their assets (stocks, bonds, gold, and so on) will always fluctuate in value. But you can’t “spend” assets. You can spend only cash.  What will the market be doing when you retire?

Mutual funds offer an easy way for investors to gain exposure to a broad range of stocks. If picking stocks makes you nervous, fear not. With actively managed funds, a fund manager makes all the decisions for you, including what sectors of the economy to invest in and which companies are undervalued or poised for growth. But beware: Mutual funds come with fees. The average actively managed stock fund charges an annual fee of 1.26 percent, according to fund tracker Morningstar.

When it comes time to retire, retirees want a strategy that would give them peace of mind and a guaranteed income for life.  In the 2000s, we have already experienced two drawdowns of nearly 50%. And let’s not forget that if you lose 50%, you have to make 100% just to get back to even.  No matter what anyone tells you, or sells you, there isn’t a single portfolio manager, broker, or financial advisor who can control the primary factor that will determine if our money will last.

In addition to planning for sufficient income through Social Security, employer-sponsored retirement plans, and personal savings and investments, we need to document how we want to manage our health and assets during retirement.  One of the more exciting structures for locking down income has other powerful benefits as well. It is the only financial vehicle on the planet that can give you the following:

In the end, one of the best places for your hard-earned retirement money is annuities!  • 100% guarantee on your deposits. (You can’t lose your money, and you keep total control.) • Upside without the downside: your account value growth will be tied to the market, so if the market goes up, you get to participate in the gains. But if the market goes down, you don’t lose a dime. • Tax deferral on your growth. • A guaranteed lifetime income stream where you have control and get to decide when to turn it on. • No annual management fees.

An annuity is a tool that gives you a guaranteed income for the rest of your life.  The easiest way to understand this is, it’s exactly what Social Security does. With Social Security, you know, you’re paying in over your lifetime while you’re working, and then when you retire, you get paid back income every month for as long as you live. You don’t have to be limited by Social Security; you can expand your lifetime income by doing this on your own as well.”

Annuities have long been the whipping boy of the financial industry.  Money Managers, brokers and financial advisors see annuities as an irreversible decision that no longer allows them to generate revenues from your investment.  Prominent money managers spend tons of advertising dollars trying to convince the public that all annuities are bad.

Down deep they factually know better, and are aware that all annuity types cannot be put into one category.  The game here is to “convert” that large annuity you have into their managed-money platform and receiving the fees that are included.  Here is the irony: you represent a lifetime of income for the broker so long as you never leave.

When a retiree adds this guaranteed income to his Social Security payments, they had more than enough to maintain his/her standard of living.  When compared with any other type of “sure thing” investment, they will certainly run out of money.

This is to say that the solution outlined, as exciting as it is, is not the be-all and end-all solution, nor is it for everyone or every situation. It’s part of an overall asset allocation.  But with an income annuity, which is really a form of income insurance, they have protection for life.

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Wednesday, August 19th, 2015 Wealth Management Comments Off

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